It is great to be here with Treasurer Peter Costello from Australia. We have been having our annual bilateral meeting and we have obviously been concentrating on the issues surrounding the progress towards a Single Economic Market between Australia and New Zealand which we see as vital for the economic growth of our two countries. And we have covered a range of issues today, progress on things which have been underway such as the Trans-Tasman Banking Council and other matters, but particularly today we have focussed on a number of issues, one is start on the process for negotiating our revised double tax treaty between the two countries and the NZ Government has a number of decisions to make in the very near future on associated matters. It is not the same as the corporate tax rate, you can put your minds at rest, that’s not the issue and that will enable us to proceed towards those negotiations. Investigating the feasibility of Trans-Tasman private retirement savings portability which has been a major issue for companies operating Trans-Tasman, with people moving backwards and forwards across the Tasman, not to be confused again with portability of superannuation once retired; continuation of work towards a CER investment protocol. The Australians have tabled an ambitious proposal and we have undertaken to respond after some further work; and continuing to facilitate the coordination of business laws and doing such things for example as the mutual enforcements of court proceedings and judgements on both sides of the Tasman. So work is proceeding and proceeding very well indeed and talks today were in the usual format of discussions between Peter and myself and they were friendly and very cooperative for the future. Peter.

TREASURER:

Well thank you very much. Can I begin by thanking Michael Cullen and the New Zealand Government for their hospitality. These annual talks are important talks for the relationship between our two countries. I don’t think there would be two countries anywhere in the world that have more in common than Australia and New Zealand. We are natural friends and natural allies. But we are both small countries in global terms. We have a population of around 20 million, New Zealand about 4 million, the truth of the matter is that we will find both of our economic prospects stronger in a combined market of 25 million. We will find it easier to do business and our people will have better job opportunities if we can have seamless commerce across the Tasman and we have the objective of developing that. As Michael said we have made good progress today in relation to tax treaties; portability of savings, retirement savings; coordination of business laws and the CER investment protocol.

As you know CER has facilitated movement of goods across the Tasman. The next step will be to make investment easier across the Tasman and Australia has ambitious hopes in relation to this and we look forward to developing those talks further.

Can I say that although many of the regulatory changes are technical in detail, it is the technical hard work that is going to produce concrete results and the concrete results at the end of the day will be closer relations between our countries, better business opportunities for our business people, better job opportunities for our young people at a time when each of us are going to be facing economic challenges, the strength that larger market access can bring will be good for both of our countries.

So I welcome the fact that I am back here in New Zealand, that we are making good progress and I want to see that progress continue in an ambitious way in the future.

CULLEN:

Questions.

JOURNALIST:

Are you able to give us any examples of the, what you describe as the ambitious market access offer (inaudible)?

TREASURER:

We in Australia have a screening regime in relation to foreign investment which we think we could make much more advantageous for New Zealand and we would like to make it more advantageous for New Zealand and in return we would like to see reciprocal entitlements. Now, getting into the negotiation of that will take some time but we have kicked it off, Australia has made an offer to New Zealand, it is an ambitious offer and we are awaiting an ambitious reply.

JOURNALIST:

Mr Costello, some years ago the Japan factor was cited by Australia as part of the reason that would make Trans-Tasman investment cooperation hard to achieve. Does that appear to have now gone and can we all get there?

TREASURER:

Well I think we can progress that, most definitely. We have moved on particularly with our Free Trade Agreement with the United States, we have offered much better terms and conditions to the US as part of our Free Trade Agreement, that has managed to clear objections from other countries and we would now like to offer a similar opportunity to New Zealand. From Australia’s point of view there is no reason why investment from New Zealand should be more restricted than investment from the United States. We would like to have New Zealand amongst the first row of countries with access to invest in Australia.

JOURNALIST:

Were Australian businesses complaining to you about the access they can get to the New Zealand market? Do they object to the overseas investment regime here?

TREASURER:

Well you see, if we opened our market further to New Zealand we would expect in return greater opportunities in New Zealand, this is the way these things operate. Now, Australia has made an ambitious offer and the New Zealand Government will in due course reply. And we hope that the outcome of this will be better rights for both countries.

JOURNALIST:

This must be prompted by the business community in Australia asking for something?

TREASURER:

No, I can’t say to you that this has been pushed so much by the Australian business community, it has been pushed by the Government because we have done precisely this with the United States. The end result is as of today, under the Free Trade Agreement we have with the United States, the US has better access to Australia than New Zealand and that shouldn’t be the case. As good friends, as first class friends, New Zealand should have the same access to Australia as the US does.

JOURNALIST:

What are those differences Dr Cullen, a lot of the public would see the CER 20 years and that they would conceive that we have…?

CULLEN:

Well we have had CER for well over 20 years now, 25 years, so I think that is one of the issues is that it is an old agreement in free trade terms, it doesn’t have an investment protocol. So in a sense that this issue has arisen out of discussions with the conclusion that in the process of updating that agreement on the Single Economic Market, it is appropriate to have an investment protocol as part of (inaudible) economic partnership agreements. There are of course costs attached to people going through the current regulatory process and it is worth always reminding ourselves that not a single application for business investment under the overseas investment regime has been turned down in New Zealand since 1984. It is only land acquisition proposals which have been turned down under our current legislation.

JOURNALIST:

So (inaudible) business giving an ambitious response to the offer?

CULLEN:

I envisage having ambitious discussion and coming back. We also of course have to be able to secure votes in the Parliament for a move of this sort, it would require amendment (inaudible).

JOURNALIST:

Given you’re moving towards a single market though would the (inaudible) would be that investors on both sides would be treated exactly the same?

CULLEN:

Treated somewhere between exactly the same and proportionately. Obviously there is a difference between the sizes of the two economies which has an impact in talking about the level of which (inaudible) may occur, that is why we need to come back to Australia with a proportionate response to their offer.

JOURNALIST:

Mr Costello you said there was an ambitious offer, what are the actual details of that?

TREASURER:

Look, these matters are best handled between governments and negotiators I think, but what is guiding us in relation to this, is having recently been through this exercise with the United States and having improved the ability of the United States to invest in Australia and Australia to invest in the United States. That becomes a bit of a goal for us to ensure that those terms and conditions are offered to other countries too with whom we have very, very close relations.

JOURNALIST:

That is the aim?

TREASURER:

Well, that becomes the benchmark and everything negotiates for the mutual benefit of the two countries.

JOURNALIST:

Mr Costello, is the investment offer from Australia more ambitious than the US deal?

TREASURER:

I said that was the benchmark and…

JOURNALIST:

But is it more ambitious?

TREASURER:

…and I also said that having negotiated this with the Americans and having given them access to that extent and the Kiwis being great friends, first class friends, we would expect them to have equal treatment.

JOURNALIST:

Do you see any major problems with it Dr Cullen, from what you have seen so far?

CULLEN:

We have got to work through a number of issues obviously before we can respond but I would expect to come back during the current year with an appropriate response.

JOURNALIST:

Mr Costello, do you accept the proportionality argument that Mr Cullen is putting forward?

TREASURER:

Look, I think countries have to make sure they protect their own citizens and they have to do what is best for their own nations, of course they do. And when we negotiate with bigger economies than us, we are very conscious of that. When Australia negotiates with the United States, this parity and the size of the economies by the way is larger then when New Zealand negotiates with Australia. So we are very used to being in that situation. When Australia negotiates with China, as we are currently doing, there is also a huge disparity. So, countries do have to have an eye to the interests of their citizens and their sovereignty. Personally I think of the interests of their countries and their sovereignties is enhanced by liberalisation and that is the way I reconcile these issues.

JOURNALIST:

Have you discussed climate change?

TREASURER:

Yes, we had a discussion about carbon trading systems and what they would look like, the advantages that may well come from them and each of us had a discussion about what we think will be the outcome in our countries with emissions over the next few years.

JOURNALIST:

And what did you say you think the outcome in Australia will be over the next few years?

TREASURER:

I think that Australia is on track to meet the emissions target that was laid down in Kyoto by 2008. We think we are within the range of meeting that and even though Australia has not ratified the Kyoto protocol we may well be reaching the goal. So, substantively we may well be doing much better than a lot of countries that in fact (inaudible).

JOURNALIST:

Do you expect that one day there will be a single carbon market between the two countries?

TREASURER:

Here is what I think will happen in Australia. I think as the world moves towards a carbon trading system we will not want to be left out and we will want to be in a position to take advantage of that trading system. But when I say the world moves towards it, in particular what we think is that no real genuine international trading system can work unless the largest emitters are part of the system. And the largest emitters are the US, China and India. Because if the balance of the world operates under a capped system with trades and the largest emitters in the world are outside the capped system, you obviously have a real problem making that market work. And Australia is very intent on this point, that there will be no realistic change to global emissions if the system does not include the United States, China and India. And we of course have a diplomatic initiative called AP6 which is designed to bring the United States, China and India as part of that global system.

JOURNALIST:

Mr Costello, on a domestic political issue, Malcolm Turnbull elevated to the Cabinet, do you think he is going to make a valuable contribution and do you see that as any sort of threat to your leadership ambitions?

TREASURER:

I think anybody who is appointed to the Cabinet deserves congratulations, it is a very important honour to be appointed to the Australian Cabinet and I congratulate Malcolm on his elevation, to have been elevated to the Cabinet after two years is an extraordinary achievement. And of course I also congratulate Joe Hockey who has recently been elevated to the Cabinet. Each of them brings to that role new skills and in an election year we want to utilise the skills of everybody.

JOURNALIST:

You don’t think it is a threat to your leadership ambitions?

TREASURER:

I don’t enter into speculation of that kind of nature.

JOURNALIST:

Can I just, on the retirement savings portability, are there any issues around the fact that Australia’s system that are compulsory and ours isn’t that (inaudible)?

CULLEN:

No I don’t think that is too much of an issue. Obviously we require that our consideration for issues of being locked in and (inaudible) in those kinds of matters so that the Kiwi Saver Scheme which starts on 1 July this year, and the number of schemes which fulfil similar requirements, it is certainly the kind of scheme which on the New Zealand side of the Tasman would be appropriately discussed within this context.

JOURNALIST:

Have you seen the statement from the Employers and Manufacturing Association calling for tax cuts in the form of compulsory retirement savings?

CULLEN:

No. What is this, this is tax cuts for workers in response to work (inaudible) or tax cuts for businesses in response to (inaudible). The key questions I always ask is who is paying for it and there is usually profound silence at that point.

JOURNALIST:

I think it might be you.

CULLEN:

Yes, that is very kind of you. It is an offer I often get (inaudible) in many different contexts, that I have to pay for it.

JOURNALIST:

Mr Costello, just on Australia’s inflation figures, I understand they came out last week, do you want to comment on those?

TREASURER:

Well, the quarterly figures that came out last week were actually negative, and the reason why they were negative was that a number of factors which had influenced the previous quarter, in particular petrol prices and fruit prices, corrected themselves. And just as I said when those one-off factors affected the CPI by increasing it and you had to look through those factors, so those one-off factors when they decrease the CPI have to be looked through. But when you look through those one-off factors you see that inflation appears to have moderated in Australia in underlying terms about a 0.5 per cent per quarter, that is good news on our inflation target which is 2 to 3 per cent. It looks like we are back within our range and I want to see low inflation locked in. Now, we may have some challenges with a drought which is quite severe in Australia at the moment, you would expect some effect to gain on rural production, that may well be in the food prices. But I welcome those CPI figures released last week, they showed a moderation in inflation and they show inflation moving back within our band.

JOURNALIST:

Dr Cullen, have you got any thoughts on John Key making a speech about the growing underclass in New Zealand?

CULLEN:

I am not sure what he means by a growing underclass given the falling levels of unemployment and the rising levels of skills acquiring, the growing levels of household wealth and growing real wages. I’m afraid he gave a speech that may have been appropriate about seven years ago.

JOURNALIST:

Mr Costello, in terms of investment proposed between the two countries, wouldn’t they be enhanced by mutual recognitions (inaudible)?

TREASURER:

Well, we have solved, Dr Cullen and I, the most pressing problem in this area which is the triangular tax situation. Now, the question of New Zealand residents getting access to credit under the Australian taxation system I think is in a totally different class. When you are comparing taxation systems you have got to look at the totality of the tax system because different countries take different weights in different areas on their taxation system. For example we in Australia have a lower company tax rate than New Zealand. We in Australia have a lower GST rate than New Zealand. We in Australia have higher taxation in other areas than New Zealand as a consequence and to single out one area and claim to take the benefit of that without looking at the totality is not fair. And so I think we ought to remove obstacles to trade but we can’t open the Australian taxation system to cherry picking in one area any more than New Zealand can open its taxation system to cherry picking by Australians in other areas.